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Surplus Asset Identification = Reduced Risk + Higher ROI

Investment recovery (IR) represents the third phase of Supply Chain or Life Cycle Management: First, acquire the asset; second, control it while in use; and finally, dispose of the asset. Surplus asset identification is the initial, and therefore, key step in successfully completing that third phase of the materials management process.

Surplus asset identification is broader and more inclusive than most would consider. Surplus asset identification involves:

Identifying the sources of information on existing and future surplus;

Identifying the physical location of the surplus;

Developing an inventory and cataloging protocol;

Recording the cataloged data in a database to facilitate reuse or sale.

Reduced Risk + Higher Value

Why Surplus Asset Identification is Important:

The entire process of investment recovery really begins with the identification of surplus assets. This term “identification” should be taken in the broadest possible sense. That is, obtaining the knowledge that the surplus exists and then determining the specific characteristics of that asset. Maintaining a consistent process for locating, identifying and properly describing your surplus will help you determine the best way to dispose of your assets. The penalty for not doing so can be severe. At the very least, descriptions that are incomplete will reduce the potential for redeployment within your organization, and will likely decrease the market value to prospective buyers of equipment.

Redeploy First. Identify Always.

The highest and best use of a corporation’s surplus assets is to be reused somewhere else in the corporation. Reuse is not possible (or at least dramatically more difficult) without accurate cataloging of the surplus assets. Surplus assets that cannot be redeployed should be sold as soon as it is recognized that they are not needed for current or future operations or as critical spares. A timely sale optimizes the remaining fair market value of the now-surplus asset, but the marketability of the asset is dependent upon the descriptive data provided to the market. The completeness of the asset specification determines the usability of assets be marketed and sold. The more specific, relevant data provided about an asset, the greater confidence prospective buyers can have in its usability for their needs. The greater the buyer’s confidence, the lower their perceived risk . . . and therefore, the more they are willing to pay.

So, in a very significant way, the market value of a company’s surplus assets (for redeployment or sale) depends upon the complete and easily accessible descriptions of those assets. Collecting the necessary asset detail and specifications requires the IR specialists, or their contractors, to be thorough in obtaining complete information. Providing complete details and descriptions, including photos, reduces the risk to potential internal users and outside buyers. Reducing risk increases the opportunity for reuse and increases the market value of the asset to be sold.

The “How” of Identifying Surplus Assets

As an investment recovery specialist, your work to locate, identify and catalog valuable surplus will bring you into contact with colleagues throughout the company.

Each group has its own areas of expertise, and each area can add value to your IR process:

Business and production groups or units are the top sources of surplus. The majority of capital assets are employed in the manufacture and movement of your company’s products. Studies of all industries indicate that at any one point in time, from 2 percent to 10 percent of companies’ assets are surplus to their needs.

The engineering group should provide a ready source of information on forthcoming construction, equipment upgrades, expansions, and process changes.

The maintenance group is a primary source for surplus equipment information.

Warehousing and stores personnel are vital in identifying parts that are no longer used on the equipment. Safety and environmental groups deal with ever-changing regulations and constantly strive to upgrade working conditions.

The internal auditing group can also be a great source of information.

The IT department continually creates surplus through equipment upgrades.

The “Who” of Asset Identification (Who? You!)

The plant or field operations personnel need the hands-on support of the IR department. IR must be ready to provide (through in-house resources or contract) the inventory, cataloging and data gathering for the plant, operations, and field personnel. They do not have the time to do the necessary work, nor do they have the incentive. They are not, usually, measured on their ability to manage surplus assets and dispose of them in a manner that maximizes the remaining value of those assets.

The “What” of Asset Identification

The collection or assembly of the descriptive data is often called the inventory. Although the term “inventory” for the rest of the organization means a physical count, for the IR professional, the cataloging and description of an asset go well beyond counting to include the recording of all the essential descriptive characteristics of an asset that defines its function and use. The descriptions required for asset redeployment or asset sale are vastly different than the descriptions used in accounting records. The description that will facilitate a company to reuse (transfer or redeploy) or properly sell an asset is approximately the same as the descriptors needed to originally purchase the item.

The process of cataloging surplus assets that are being inventoried should begin with an inventory plan. The asset plan should begin by:

Identifying and obtaining whatever records exist. These can be accounting records, plant operating and maintenance records, diagrams and drawings or operating manuals.

Preparing a standardized naming and descriptive protocol through the use of templates (see example below). Where possible, developing templates that contain the descriptive data fields for frequently appearing assets will not only speed the cataloging process but provide more complete and consistent information.

Prepare for exceptions. It may be impractical to prepare a specific template for every type of asset that you will be dealing with, so some assets will be described simply by using what general characteristics are available to a major noun, secondary noun, manufacturer, size, etc. Knowing and accurately communicating the condition of the assets cataloged is critical to any redeployment effort.

The use of condition codes and comments about the equipment should accurately and honestly reflect the usability of any potential internal user or an outside buyer. Miscoding of asset condition will result in a refusal to trust the redeployment process and will adversely affect the ability of the company to have an effective redeployment program. NOTE: Caution should be used in any statements regarding the condition or functionality of the asset so as not to impart an implied warranty or fitness for use.

Cataloging Surplus Assets: Bringing It All Together

Deciding on the architecture of an asset catalog or database requires an understanding of the purpose (internal transfer or outside sale) of the asset listing and who will be using the database. Ease of use of the electronic catalog (for the user and those maintaining it) is paramount if the catalog is to encourage redeployment (reuse) and to facilitate the sales process if the asset is not reused. Paper catalogs are expensive to produce and out of date before they are produced; they are considered to be of little value.

The original surplus information and the format in which you maintain the data comprise the heart of the “identification” process. All of the other vital functions and processes of your investment recovery effort depend on this database. Data and data integrity must be protected, standardized and consistent. Complete and correct data will allow you to optimize your redeployment value and increase your ROI from sales.